The Fed is tightening, but long-term rates aren't keeping up. Some worry it means that economic growth will slow.
By Ron Scherer | Staff writer of The Christian Science Monitor
NEW YORK - Interest rate forecasting has now become almost as difficult as predicting the path of a hurricane.
Even after the Federal Reserve raised interest rates 0.25 percentage points last week, there is now a wide disagreement over whether rates will be rising or falling next year, reflecting a split over the pace of future economic activity.
The pessimists expect economic growth to slow in 2005, although they don't project a recession. The overall bond market now seems to be in this pessimistic camp. Professional bond traders haven't pushed long-term interest rates up on pace with the Fed's tightening of short-term rates. In effect, the bond market seems to signal a slowing economy that will put a damper on the Fed's rate hikes.
The optimists, however, foresee the economy skipping along at a relatively brisk pace that would be powerful enough to cause the Fed to continue raising rates through the year.
"The forecasts are all over the map," says Jose Rasco, an economist with Merrill Lynch & Co.
http://www.csmonitor.com/2004/0927/p02s01-usec.htm